Housing Subsidies: But How Will the Fat Cats Survive?

Again, I know New York and Pittsburgh are different markets. REALLY different. But this is a pretty broad issue. It's not so much about whether people should build luxury apartments. It's about whether or not luxury apartments are the best investment, given finite resources.

What's also striking is how incredibly complex these programs are. No, it's not surprising. But even in this short article, you get a sense of all the horse trading that goes on. Maybe the market ain't perfect. But neither is this.

Comments

sam

around here you can get an interest free loan from the URA if you refurbish a home/apartment in what's known as a targeted area, places like the Hill, Allentown, Beltzhoover and a lot of North Side (except the Mexican War Streets). That's interest free, regardless of the owner's income. Which in most of the targeted areas is a good deal for people with modest homes and modest incomes.

However, one of those targeted areas is Manchester, a place where the large Victorian homes attract buyers who are doctors, lawyers and other well-to-do types. Which is part of what that neighborhood needs to lift itself out of a 60 year slump. But a lot of times, the new owner renovates a dump and turns it over on the market for a nice price (rehabbed homes there go in the $250,000 to $300,000 range). Should there be some claus that obligates the owner who did the work to live there a certain length of time before raking in a tidy payoff...or to pay some hefty interest on a windfall?

Or should a housing subsidy equal be a one size fits all deal? So that a struggling grad student buys a home in targeted neighborhood gets the same deal and breaks as a savvy speculator or developer (the mistick company owns more than a few properties on the North Side)?

Does (or should) the concept of "fairness" based on income, turnaround, profit enter the situation?

One could hope that a lot of things would enter the discussion. Fairness. Efficiency. Affordability. Reason. And different places would probably demand different answers. Like I said, I doubt New York and Pittsburgh would come to the same conclusions. Except that in a lot of cases, under the current way of doing things, they HAVE come up with the same answers: Build condos for rich people.

I suspect that this has a lot to do with the political process. Building condos for rich people seems to be a good way for developers to make money, and a good way for politicians to stand in front of fancy buildings, cutting ribbons with fancy people.

In the end, there is no perfect solution. As you recall, I mentioned that the subsidized building in Silver Spring rubbed a lot of people the wrong way. That is, politically, it raised a lot of eyebrows. Would there have been a different way to lower the rent for those people? A different way to means test, apart from simply charging different rents to different people? Would the other ways have been better? Heck if I know.

But I do know that the current process seems strange in a lot of cases. That is, the governent is steps in because it says the market is not providing the right mix of housing. In New York, the fear seems to be that the market would only serve wealthy people. So the city steps in and does what? Subsidizes housing for wealthy people.

In Pittsburgh, I am not all that sure what the overall plan is. The city appears to be subsidizing housing for rich people downtown. Middle class people in the struggling neighborhoods. And poor people in the projects.

That is, the city is building housing for everybody.

It might be worth noting that housing in Pittsburgh is already cheap. And that the city is dead broke. And that other infrastructure is crumbling.

So those are a few more factors I think this city might take into account. Especially when considering whether or not to pitch in for granite countertops in the Fifth-Forbes corridor.

Overall, when you subsidize something you make it more affordable, hopefully spurring demand. So I guess, in the end, the city wants to take credit for the fact that housing in Pittsburgh is affordable. Like I mentioned before, that is akin to the city spending several hundred million dollars on a machine to make sure the city has steep hills and crappy winters.

So what to do? I think that a close look at regulatory policies and zoning would be a much better place to start. To wit: John Morris posed an excellent question a few post back regarding parking requirements on new construction:

Maybe because there is no payoff in the form of a fancy ribbon and fancy people and fancy media coverage. There is no hockey arena. No light-up night. Just the horrible, productive drudgery of real politics.

And politicians avoid that at all costs.

They would rather take credit for attracting the Big Developer for the Big Project. For keeping the hockey team in town.

In the meantime, the water mains dissolve and the schools go to hell.

All of a sudden the market doesn't look so bad. The water mains might still dissolve and the schools might still go to hell. But at least no one would have to pay a couple hundred million to keep Lazarus and Lemieux around for five years longer than they might otherwise stay.

In keeping with the logic of public choice theory, I don't have the time or self interest to delve into the complexities of the parking requirements.

Does any ( angry drunk person? ) have at least some idea of the answer to my question. My personal suspicion is that, this is one of the key barriers to creating a viable downtown. Personaly, the one thing that strkes someone from NY or San Francisco that has seen Pittsburgh's downtown is how much space and capital is put into parking. It really stands out for me, partly because there is such astrong geograghic similarity between downtown Pittsburgh and the lower part of Manhattan.

I think it's pretty selfevident, why the issue of regulations and other government imposed costs are not brought up, when development is discussed.

1) is that finding out and crunching these facts is no doubt a big job.

2) Is that a true in depth look at this issue is likely to bring up issues that the government would rather not confront like the true costs of it's regulations, taxes and other things like mandatory union labor etc..

3) Is that it brings to the front the inherent conflict between Pittsburgh and it's suburbs.

I think that the quote from Milton sizes up the motives of many politicians, "better to rule in hell than serve in heaven".

I really love public choice economists for fighting fire with fire. If it is true that capitalist's can be blindly smeared for having selfish motives, isn't it fair to see whether politicians might operate selfishly? a fuctioning market economy just doesn't leave a whole lot of power to political players. Speaking bluntly if one can't take credit for something -what incentive does a politician have for supporting it? That is the basic incentive that operates in the political world and one should be very aware of it.

And, to dig myself deeper into the whole, I will drop in another obvious fact-- Mega projects are almost always union projects. A hundred houses fixed up by do-it yourself and small contractors will not bring a chunk of union jobs.

I know that sean will be here to say that there is no conflict between Pittsburgh and it's suburbs, so I want to clarify myself.

In a city like NY, London, Tokyo, Hong Kong ( I am not sure if Hong Kong really has suburbs ) in which the overwhelming majority of people do not commute into the city with private vehicles, there is a sybiotic relationship between outlying areas and the denser parts of the city and a much greater chance that the positive economic contribution of visitors exeeds the costs they impose. This is not true at all with a situation in which a high percentage of people bring vehicles into the city during peak hours and insist on parking. In that case the chances are that the costs imposed by these visitors and thier destructive effect on the urban fabric exeeds thier benefit to the city.

That is the root of Pittsburgh's conflict. From what i have read this is the main conflict that exists in a city like L.A.

This quote in the thread above, written by someone else, needs to be repeated so we can think again about it:

".... Overall, when you subsidize something you make it more affordable, hopefully spurring demand. So I guess, in the end, the city wants to take credit for the fact that housing in Pittsburgh is affordable. Like I mentioned before, that is akin to the city spending several hundred million dollars on a machine to make sure the city has steep hills and crappy winters.

These things are already taken care of. "

Slow down.

Whey a subsidy occurs, the link to that thing being "more affordable" is not a guarantee.

Case in point: There have been lots of URA Loans that have 'strings attached.' When you get a loan, you gotta do XYZ. Often when home owners got houses, then talked to contractors, they would say -- do you have a URA Loan? If so, the price for the work is $A. Otherwise, if you are paying for this out of your pocket, the price is $B. (A> Bx3)

Watch for strings attached elements = loss of freedoms.

The other artifact of subsidization seems to be a loss of competition.

Once you subsidize ONE downtown department store, you'll not be able to watch another move in to compete with the subsidized. Perks to one mean nobody else comes unless they get similar deals. Perks (subsidization) often puts poison into the marketplace. Hence, less competition.

When US Air ran its course of getting special treatments from the government critters, and the gov's purse was empty ... then others came into the marketplace.

I contend that the South Side has done well in terms of biz development because the URA and LDC were so bad at doing anything of merit over here. SS thrived because they (subsidies) stayed away.

BTW, Hong Kong has suburban places (like Discover Bay). But, folks who live in Discovery Bay (a car-free development) take the ferry to work in the city. Then perhaps in the city the people would take bus, walk or taxi.

Almost as soon as the auto was invented, Pittsburghers started driving to work. Look at some old photos of cars parked on the slopes of Mon riverbank, where the Parkway East now runs. Same is true of the N.Side. As for taking the bus, trolley or train to work, sure people rode public transit in the past. But the car was the main mode of transport nearly from the get go. As far as I can see, the only way to break that habit is to make parking so expensive and scarce that it's nearly unaffordable on a daily basis...of course, unless tens of thousands of people live downtown, that really kills any incentive for retail businesses to start up and flourish.

you can talk about NY, LONDON, HONG KONG all you want, but what's happening there really doesn't apply here...and never did in terms of downtown.

"Almost as soon as the auto was invented, Pittsburghers started driving to work. Look at some old photos of cars parked on the slopes of Mon riverbank, where the Parkway East now runs. Same is true of the N.Side. As for taking the bus, trolley or train to work, sure people rode public transit in the past. But the car was the main mode of transport nearly from the get go. As far as I can see, the only way to break that habit is to make parking so expensive and scarce that it's nearly unaffordable on a daily basis...of course, unless tens of thousands of people live downtown, that really kills any incentive for retail businesses to start up and flourish."

All, I can say Sean is that may be very true and bingo, that is my plan in a nutshell. The fact that something has always been done does not mean that it is logical. You might have some point here if Pittsburgh was not in such obvious trouble. I am sure that is also very true for Detroit. ( and there is no more fitting end to the motor city )

The definition of insanity is doing the same thing over and over and expecting different results. How much more parking do you think Pittsburgh has to provide? Enough for everyone to live out of town and pay taxes somewhere else?

The War is on and I love it. This is the smack down that has to come. Holly and other smart people who love cities and have some knowledge of them Vs the Homer Simpson's who see Pittsburgh as nothing more than a place to park a car; go to work; Pick up some cheap candy and run home to the TV.

The important thing about people like her investing here is that they will not be the kind of people you can just push over and use eminent domain on.

The IED's are in Iraq. And thanks to the regions poor economy, it seems like half of the kids from here are there as well hooked up with the one regional export- cannon fodder. I guess it's pay back time. You want the free road and the cheap gas lifestyle, just be willing to send your kids to the Middle East to fight for oil. The situation there is complex, but it is connected deeply to Americas fuel hungry lifestyle, which you obviously think is great.